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July 5, 2011

Gold Rises 2%, Could Hit $1,600 by Year-End

Concerns over China, inflation and other factors are leading to renewed interest in the precious metal, says one portfolio manager

Gold was up about 2% at mid-day Tuesday and traded near $1,512 an ounce on the Comex division of the New York Mercantile Exchange. A number of factors, including concerns over inflation, could push the metal up to $1,600 an ounce by year-end, experts say.

“Gold’s been trading up and down at about the $1,500 an ounce level,” said Thomas Winmill (left), portfolio manager of the Midas Fund (MIDSX) and the Midas Perpetual Portfolio (MPERX), in an interview.

In the first six months of the year, gold has risen 5%, according to Standard Chartered. “We expect it to trade around $1,600 an ounce by year-end,” Winmill said.

“There are many factors at work here. But if the Chinese government is expected to spend less on U.S. dollars, that is positive for gold,” he explained.

Still, the U.S. dollar and gold do not always trade in different directions. “Both are seen as ways to avoid risk, so they can occasionally move in same direction,” Winmill said. “But gold is mainly denominated in U.S. dollars, so fundamentally they move in opposite directions.”

Inflation Picture

With inflation at 3.6% for the 12 months ended May 31, investors are looking to put more money into hard assets, he says. “If inflation is north of 3%, especially if it gets to 4%, this could really influence more people into buying gold,” shared Winmill.

In their weekly metals outlook, Standard Chartered analysts said Tuesday that, “Gold’s resilience is not surprising, as Asian demand remains very strong, despite high prices.”

The World Gold Council (WGC) estimates that gold demand in India – the largest gold-consuming country in the world

– grew by 11% in Q1, and strong growth persisted in April and May, according to preliminary figures.

“While the economy has slowed recently, real interest rates remain negative, helping to support demand,” according to Standard Chartered. “Outside Asia the picture is more mixed. In the UK, gold coin sales rose by 9% in the first half of the year, although in the important U.S. market sales by the U.S. Mint were down 14% during the same period.”

Nonetheless, Standard Chartered says it is maintaining its bullish rating on gold.